Why the One Rupee Currency is Issued by the Government of India and Other Currencies by RBI
In the Indian financial system, the issuance of currency notes takes on a unique distinction. While the one rupee currency note is issued by the Government of India, notes of higher denominations are issued by the Reserve Bank of India (RBI). This article explores the historical, legal, and operational reasons behind this distinction.
Historical Reasons
The one rupee note has a rich historical context. Tracing its roots back to the British era, the first one rupee note was introduced in India in 1917. After India gained independence, the Government of India continued this tradition to highlight its direct connection with the currency. This historical practice symbolizes the government's authority over and responsibility for the monetary system.
Legal Authority
The Reserve Bank of India is established under the Reserve Bank of India Act 1934, making it the central bank of India. While the RBI has the exclusive authority to issue banknotes of two rupees and above, the one rupee notes and coins are the responsibility of the Ministry of Finance. This division of authority ensures a clear separation of roles and responsibilities in the financial system.
Symbolism and Operational Efficiency
The issuance of one rupee notes by the Government of India holds symbolic significance. It emphasizes the government's role in currency management and its responsibility for the value of smaller denominations. On the operational front, the RBI manages monetary policy and overall currency management, including higher denomination notes. By retaining the one rupee note issuance under the government, it fosters a clearer distinction between fiscal and monetary authorities, enhancing operational efficiency in the financial system.
Understanding Currency Issuance in India
The one rupee note serves as the base for all other currencies. The Finance Secretary of the Government of India signs this note, establishing a trusted foundation for the broader financial system. The RBI, as a central bank, also plays a critical role in issuing higher denomination notes. The Governor of the RBI signs these notes, making them a liability for the central bank. As a liability, the RBI must maintain adequate assets, including money issued by the Government of India, to back these notes.
Money, in essence, is a concept for storing and transferring value. This article aims to provide a comprehensive understanding of how currency is issued and managed in the Indian financial system, emphasizing the roles of both the government and the central bank. For a deeper insight, watch this informative video:
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